Euro on hold ahead of ECB, Thursday

There is little to add today as the markets trade in tight ranges ahead of Thursdays ECB meeting, with only the US Non Mfg ISM, due later in NY, to provide any real chance of volatility.

The charts are pretty much unchanged, with the only difference being that the short term charts have now more or less unwound their oversold condition and should continue to flatten out in the coming session.

While the major downtrend remains intact, ahead of the likely dovish bias from the ECB, it looks as though we could continue to hang around current levels where the 200 WMA continues to act as a magnate. We could yet get a short term squeeze higher, above today’s 1.3430 high towards Friday’s high at 1.3445 (daily Tenkan). Beyond there, 1.3500 and 1.3515 – descending trend resistance/23.6% of 1.3993/1.3370 will see good sellers. If we get above here, which looks doubtful, the daily Kijun at 1.3530 will provide minor resistance, but above which there could be quite an acceleration given that the market is extremely short of the Euro – (CFTC figures show Euro shorts at a 2 year high) – and we could then see a run up towards the base of the previous wedge (blue line) at 1.3560 and on to the next Fibo resistance at 1.3605 (38.2% of 1.3993/1.3370/daily Cloud base).

As we previously said, the longer term bullish dollar trend remains intact and although I doubt that we head much below 1.3400 today, if/when we do see a sustained break, then we would see another run towards last weeks low at 1.3370. Below this would head towards 1.3340 (100 WMA) and 1.3294 (7 Nov ’13 low). More distant target would be at 1.3228 (61.8% of 1.2754/1.3993) and then 1.3104 (6 Sept ’13 low).

In the bigger picture, as we have said before, the eventual target for the dollar appears to be the 9 July low 2013 at 1.2754. Again, as before, don’t get too excited yet, if it turns out to be correct, I think it will be a choppy and relatively orderly progression and there should be plenty of opportunity to get on board into the odd, intermittent short squeeze. I think we are in the process of seeing one of these squeezes now and it could be that we have an opportunity ahead of us to sell the Euro in the 1.3500/50 area. Alternatively, shorter term traders may look for dips to be short term buy opportunities as the squeeze gathers pace.

Expect a similar day today, with the chance that the US data will provide some volatility, but the medium term strategy remains unchanged in looking for levels to buy dollars/sell Euros.

Economic data highlights will include:

EU Services/Composite PMI’s, US Services/Composite PMI, ISM Non-Mfg PMI, US Factory Orders